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Market Insights

Palantir: from hype to hope

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Palantir has been on something of a rollercoaster ride since bursting onto the scene in 2020 with a much hyped IPO. The stock price rocketed early on, extending from $8.90 at the lows in October to highs of $45 by the end of January 2021.

Palantir Chart

Since then the price has fallen sharply, retracing much of the early move and settling into a new trading range. Nevertheless, the stock is now trading near the 2020 lows and in need of a new catalyst.

Various Street analysts downgraded Palantir and reiterated their sell ratings after the mixed third-quarter results announced in November, and the recent fall has brought price in line with these lower valuations.

  • RBC Capital analyst Rishi Jaluria downgraded Palantir to underperform from sector perform with a price target of $19, down from $25 ("mixed" third quarter results with deceleration in the government business, commercial acceleration fueled by SPAC investments is "unsustainable.")
  • Citi analyst Tyler Radke reiterated a sell rating and $18 price target. (Palantir's decelerating growth "came into center view" in the third quarter, with weakness in both commercial and government)
  • Jefferies analyst Brent Thill was more positive and maintained a buy rating and $31 price target for the stock. (“PLTR delivered ahead of expectations on both top and bottom lines, and operating margin, although the magnitude of the top-line beat fell short compared to Q2,”)
  • Morgan Stanley's Keith Weiss boosted his price target on Palantir to $24 from $22 and affirmed the stock at underweight. ("signs of slowing underneath the hood," slowdown in core revenue and commercial growth, sharper slowdown in the government segment, opens up the debate on the durability of Palantir's growth.)

The post-hype phase is always a challenging period for any growth company. Which matters most for investors? The rate of growth now, or the potential growth in the future? The answer is usually both, and the two themes tend to move interchangeably with one another.

There are signs that wider adoption of Palantir’s Foundry software could drive the next stages of growth for the business, and the introduction of a tried and tested subscription model could see them follow in the footsteps of software giants like Adobe.

Although growth is decelerating, there are reasons to be positive. Contracts with the US Army, Space System Command, plus National Institutes of Health and Cancer have all been extended or awarded in recent months.

With their focus on breaking down data and aiding organisations in contextualising the available information into actionable insights, it’s easy to see why some investors may be bullish. The world is drowning in data and Palantir seems to offer an excellent solution.

Now that the initial hype phase is over, it’s time to see if there’s something more sustainable going on. From a charting perspective, a reclaim of the 20 day moving average would definitely be a positive sign and could see bulls getting interested again.

Palantir chart #2

For the bears, a move below 17.77 and through the 17 handle could encourage further selling and open up a move back towards the initial 8.90 -11.42 post- IPO range.

Not investment advice. Past performance does not guarantee or predict future performance.

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